RBI Steps In After Rs.1 Lakh Crore Fat-Finger Error at Karnataka Bank Raises Alarm

RBI Probes Rs 1 Lakh Crore Fat Finger Error at Karnataka Bank Over Delayed Reporting and Risk Control Lapse

A fat finger trading error worth ₹1 lakh crore at Karnataka Bank, which occurred in August 2023, has resurfaced as a serious governance concern, drawing the attention of the Reserve Bank of India (RBI) during its ongoing annual supervision. While the incident was contained swiftly with no financial loss, the delay in escalation and gaps in risk management protocols have prompted questions about the bank’s internal control systems.

According to multiple sources familiar with the development, the issue — though nearly two years old — has become a focal point in RBI’s current inspection of the bank’s operations. The regulator is said to be closely examining how such a massive transaction error went unreported to the board for months and what corrective measures were eventually taken.

“Even though the incident occurred about two years ago, given the quantum involved and how it has been handled so far, it is drawing a lot of interest,” said a senior executive associated with the bank, requesting anonymity.

How the ₹1 Lakh Crore Fat Finger Error Occurred

The error traces back to August 9, 2023, when a dormant savings account was erroneously credited with ₹1,00,000 crore at 5:17 p.m.. The incorrect entry was identified and reversed within three hours, at 8:09 p.m., preventing any financial loss.

While the technical glitch was immediately corrected, what alarmed regulators was not the incident itself, but the delay in internal escalation. The error, which should have been reported immediately to the bank’s top management and risk oversight committees, was only brought to the Risk Management Committee of the Board (RMCB) on March 4, 2024 — nearly six months after the incident occurred.

Also Read : SEBI Officials Under Review: Top Panel Submits Report on Conflict of Interest Issues

Delayed Escalation Raises Governance Questions

Internal records reviewed by the committee show that the bank’s IT department submitted a detailed report on the matter to the board on March 15, 2024, followed by a presentation on March 28, 2024, explaining the nature of the account, the root cause analysis, and remedial actions taken.

However, the matter was revisited again on October 23, 2024, suggesting that the issue remained under scrutiny for nearly eight months.

“The regulator is concerned about the delay in informing the board and the lack of timely remedial action. Such lapses highlight systemic weaknesses in internal control and reporting structures,” said a person aware of the RBI’s observations.

Following the board’s intervention, a Certified Information Systems Auditor (CISA) was engaged to review the bank’s IT systems and assess vulnerabilities that may have allowed such an error to occur. Subsequently, four to five senior executives were reportedly asked to leave for their role in the incident.

RBI Focuses on Risk Management and IT Oversight

Sources indicate that the RBI’s ongoing inspection is now closely examining the bank’s risk management, IT governance, and escalation protocols. The regulator has sought detailed explanations from the bank on how a transaction of this magnitude was processed and reversed without immediate managerial awareness.

“Had the funds been credited to an active account, the financial implications could have been severe. The regulator is questioning whether existing systems are capable of preventing similar incidents,” said an industry official aware of the discussions.

The RBI’s focus, sources say, is on the efficacy of internal audits, responsibility of senior management, and whether the delay in disclosure indicates broader governance gaps within the institution.

Karnataka Bank Responds, Denies Financial Loss

In response to queries about the incident, a Karnataka Bank spokesperson confirmed that the issue was an earlier operational matter which had been resolved in line with regulatory guidelines. The bank emphasized that the error caused no financial loss and was identified through routine internal checks.

“The issue was addressed comprehensively and no financial loss was incurred. It was detected through our routine due diligence mechanisms and strong internal controls, which are designed to proactively identify and rectify such occurrences. Further, the matter was duly reported to the regulator during the previous reporting cycle, and no further action is pending,” the bank’s spokesperson said.

Emails sent to the RBI seeking comments on the matter remained unanswered at the time of publication.

Leadership Changes Amid Growing Scrutiny

The renewed regulatory attention comes at a time when Karnataka Bank has been undergoing significant leadership transitions. The bank’s Managing Director & CEO, Srikrishnan H, and Executive Director, Sekhar Rao, resigned in July 2025, following a string of senior-level exits that began earlier in the year.

According to public filings, Karnataka Bank’s total advances stood at ₹76,541 crore and deposits at ₹1,04,807 crore as of FY25. In March 2024, the bank raised ₹600 crore through a Qualified Institutional Placement (QIP) to strengthen its capital base and fund expansion.

However, the series of senior management departures — including several executives hired after 2023 — has raised questions about continuity and stability at the top.

“The regulatory scrutiny, leadership churn, and risk control issues have all come together to make this a critical juncture for Karnataka Bank. The RBI’s feedback from this inspection could shape its governance and compliance framework for years to come,” said a banking industry analyst.

Fat Finger Errors: Rare but Risky

In financial parlance, a “fat finger error” refers to an unintentional data-entry mistake, often caused by human error during manual transaction input. Such incidents, though rare, have previously triggered market disruptions and forced institutions to tighten their automation and risk control systems.

Experts say the Karnataka Bank episode underscores the importance of real-time alert mechanisms, system validation layers, and instant escalation protocols to prevent operational lapses from turning into governance crises.

What Lies Ahead for Karnataka Bank

While the bank has reiterated that no monetary damage occurred, the RBI’s deeper examination into procedural lapses could lead to compliance directives or enhanced supervision. For now, Karnataka Bank is said to be reinforcing its risk management framework, reviewing IT systems, and instituting stricter internal reporting norms.

“The incident serves as a reminder for all mid-sized banks to upgrade system controls and improve reporting culture. Regulatory scrutiny of operational risks is intensifying, and any perceived weakness can attract closer monitoring,” said a senior banker.

As the RBI continues its inspection, the focus will remain on ensuring that the Karnataka Bank fat finger error becomes a learning point rather than a precedent — emphasizing accountability, transparency, and stronger risk governance within India’s banking system.

• Nifty 50
• Bank Nifty
• Sensex